Ukraine (closed; covers till August 2014)

[Firn]

More information about the Austrian right-wingers which visited the Crimea to 'observe' the 'referendum'. Nothing surprising really apart form the fact that there exists some kind of extremist platform where states can pretty much buy an European facade. Dear Gudenus party comrade Moelzer has in the mean time compared the EU to the Third Reich and warned that Europe is turning into a 'conglomerate of negroes'. I would love for how much that bunch of ****** sells itself....

[Firn]

Russia is a 'regional power' says Obama, who invaded Ukraine out of weakness and not of strenght. I actually agree pretty much with what he said there, maybe he should have added 'with lots of nuclear weapons', but overall there are valid arguments to back him up.

Now the other question is if it was wise or not to state that so openly, but I certainly don't know. In general I prefer the 'speak softly, carry a big stick' approach, but then again I'm not familiar with the cunning maneuvers at the highest political level.

[davidbfpo]

Over a week ago I posted this (Post 339), edited down:

Prof. Schindler has tweeted a Russian platoon has conducted a helicopter landing near a natural gas extraction on one the narrow isthmus between the Crimea and the mainland, at Strilkove - in Ukrainian territory from Google Maps.

Thanks to a "lurker" familiar with the region CNOC owns and operates with its own national staff this facility. CNOC? Chinese National Oil Company, sometimes known as CNOOC - adding Overseas. I cannot readily confirm this, but they know the region from regular, long stays and investments.

Perhaps the Chinese aspect explains the rapid Russian exit?

Some 2011 background on the gas field:

Ukraine's state-run JSC Chornomornaftogaz has tripled daily production at the Strilkove gas field, to 30,000 cubic meters of gas, the company's press service has reported.

Link:http://www.naturalgaseurope.com/chor...sea-shelf-3062

This Ukrainian company was based @ Simferopol, owing US$1 billion to its Ukrainian parent company (in February 2014) and was nationalised by the new Crimean state and then the PM announced:

the new owner of the company would be Gazprom

See Wiki:http://en.wikipedia.org/wiki/Chornomornaftogaz and http://en.wikipedia.org/wiki/Naftogaz

[JMA]

Michael Gerson writes for the Washinton Post and his paragraph on Ukraine hits the nail on the head.

In the early 1990s, Ukraine briefly possessed the world’s third largest nuclear arsenal, including about 1,900 strategic weapons, an inheritance from the Soviet crackup. In exchange for security assurances — specifically, a Russian promise to “respect the independence and sovereignty and the existing borders of Ukraine” — the Ukrainian government turned over all its nuclear weapons to Russia in 1996. The Budapest Memorandum on Security Assurances is now a muddy scrap of paper stuck to Vladimir Putin’s boot. According to a Ukrainian legislator, there is now a “strong sentiment” in what remains of his country that this denuclearization was “a big mistake.”

[OUTLAW 09]

In all of the discussions one has tended to forget that the Russian Army is now fully armed, manned and supplied in two Divisions worth and is still sitting where in theory "they are just conducting field training".

All the while both Putin and his Defense Ministry are claiming they are not "interested" in the Ukraine and or Moldavia and are not a threat to anyone. It was initially Putin who also stated that he had no interest in the Crimea and then moved one week later

If that were the case then has anyone heard the Russians indicate that the exercise is over and the troops are back in their barracks?

This is any interesting link that says if they go it is now to the mid May timeframe.

Again since Putin seems to think that the sanctions were just a slap on the wrist then he might have a go following the motto we have survived the first round better to get it over and then bunker in.

Interesting that the two German former Chancellors Schmidt and Schroeder seem to be fully supportive of Putin's move and blame basically the West---surprises me about Schmidt. Can understand Schroeder as he made personally a ton of money for himself with the South Stream pipeline.

http://www.foreignpolicy.com/article...ity_in_ukraine

[davidbfpo]

From a "lurker" familiar with the region banks in the Ukraine are restricting bank withdrawals to the local equivalent of US$150, apparently the banks explain the government considers itself at "war".

They also mention that there is a distinct gap educationally between eastern and western Ukraine - with the majority Russian-speaking east being better educated. This was explained by the different local demand for education, the east being far more industrialized and since 1990 looking to export. The Ukraine is a major arms supplier, in the top five and in the city of Kharkov the state-owned tank factory remains the leading employer.

Has anyone noted what the Austrian stance is on this crisis, in particular on economic sanctions? Since 1990 Austrian investors have made significant investments in eastern Ukraine, accumulating local political influence in some cities.

[Firn]

@davidbfpo: The Austrians have been perhaps the most dovish from what I have seen. It is no surprise that the Firtash was arrested in Austria, this 'neutral' country has deeper economic and political ties with Russia then it's size might suggest. High living standards, calm political waters, a central location and formerly a strong privacy for your money even if you weren't a resident. A Switzerland light within the EU form that point of view.

Is the 150$ limit enforced in unoccupied Ukraine? It wouldn't surprise me considering this graph:



A limit dampens the demand peaks and the currency fall

[Firn]

In all of the discussions one has tended to forget that the Russian Army is now fully armed, manned and supplied in two Divisions worth and is still sitting where in theory "they are just conducting field training".

http://www.foreignpolicy.com/article...ity_in_ukraine

That's a timely article, it is just so ostfrontesque to read stuff like:

The winter ... was mild with little snow, while the spring is early and warm. The soil is drying rapidly, meaning that it will soon be possible to move heavy vehicles off of highways and into fields in southern areas of Ukraine close to the Black and Azov Seas.

In any case the Ukrainians should not listen to the words of Putin but prepare for his potential deeds....

[davidbfpo]

Professor John Schindler has two short commentaries. The first is contemporary and ends with:

The West will prevail in this Cold War too because Putin’s corruption-laden model for Russia is unsustainable in the long run. In terms of population and per capita GDP, Russia is more or less Mexico with nuclear weapons. We are not headed for a bipolar world again, but a multipolar one where Russia can be a dangerous spoiler. But NATO, with American leadership, needs to wake up. This time we must ensure that Russians are well aware that they lost—so they will come to terms with the Kremlin’s crimes, including against its own people, over the last hundred years. That alone will ensure this dreadful cycle does not repeat itself yet again.

Link:http://www.politico.com/magazine/sto...#ixzz2x5DC9SNx

The second uses history to remind us that states motives can include the unfashionable, except as he points out to the Poles and I'd wager a few others too. This ends with:

How Ukraine responds to this aggression will determine not just the next weeks and months, but how much Ukrainians in decades to come think their country is worth saving and recreating in the aftermath of war and occupation. Honor matters more here than dry theories of international relations or theoretical appeals to human rights. There are some things worth dying for. If you don’t think your country’s existence is one of them, you probably won’t have a country for long, at least if you live next to Russia.

Link:http://20committee.com/2014/03/25/ho...kraine-crisis/

[OUTLAW 09]

David---both good reads---the Professor is right about the failure of the Russian model---the Russian population just does see it yet as they have historically been taught since WW2 just to survive and be happy in surviving.

Some day there will be a great research book done on the Russian mob which has long supplanted the Italian mob in power/reach and the interaction between the mob and Russian oligarchs.

[Stan]

Outlaw

I would advise you to take a closer look at the article of Yegor Gaidar, the collapse of the SU. I think that the Russian leadership is right to be nervous, if , and this is a big if, the political willpower in the EU is strong enough. Their picture of the Europeans, which has lots of truth in it, might be the reason why we see such disbelief about a big economic fallout, perhaps over gas.

Not to mention all the American tree huggers apposed to fracking

U.S. Hopes Boom in Natural Gas Can Curb Putin

[Firn]

The 'fracking' impact on the GDP of the USA is indeed small, as we have discussed elsewhere. A commodity is a commodity tough and even if it costs relative little on the markets it's lack can still ruin more then your day. Think of a thirsty guy in the desert. Happily energy can be substituted especially so in the longer run.

----

I had just to laugh out when I read the NYT article about 'Crimea besieged' by it's dependence on the mainland. Earlier we discussed how Ukraine would find out that it had to raise it's prices to more correct levels to be able to finance it's business and now:

"We have no intention of subsidizing citizens of the Russian Federation: the occupiers that have now deployed their armed contingents on temporarily occupied territory," Sobolev was cited as telling parliament this week by the UNIAN news agency.

Sobolev said that prices for gas and electricity in Crimea are priced four times below market cost and that water is provided at one-seventh of its real value.

Vladimir Omelchenko, an energy analyst at the respected Kiev-based Razumkov Center think tank, said Ukrainian companies will now charge prices that would bring a profit. He said it would be unrealistic to expect that Ukraine could win security guarantees from Moscow or persuade it to return the Ukrainian military equipment seized in Crimea.

It might even be the truth...

[Firn]

Ukrainians should expect gas price hikes, subsidies for poorest citizens

Perfectly reasonable and excellent in the long run, but not easy to pull off in the short term. This should create incentives to greatly reduced the consume of (Russian) gas and increase the energy effiency of the economy. Direct transfers to the poorest are of course necessary lest they freeze in winter. I hope for them that they succeed as smoothly as possible.

Ukraine will increase household prices for gas by 50 percent in May, and the utility companies will see a 40 percent raise as of July, newly appointed head of Naftogaz Ukraine Andriy Kobolev said on March 26.

The price hikes will be compensated through direct subsidies for the poor, and this mechanism was set up by the Cabinet on March 23, but it is yet to be made public, Kobolev said. He was appointed to the job on the same day.

But even despite the price hikes, which have been approved by the government in conjunction with the International Monetary Fund, the Naftogaz budget deficit this year is expected to run up to Hr 80 billion, or 5.6 percent of the gross domestic product. The figure is based on the assumption that the hryvnia rate will balance around 10 to the dollar.

“This is a record number, and this is something we have to manage with along with the regulator,” Kobolev said.

Strong financial help could at least stop Hr's fall. The US could print an additional couple of $ Bn and the ECB eager to weaken the € could extent QE to Ukrainian assets.

[Dayuhan]

This Interfax PR is showing all of a sudden Russian fears---namely that the EU could in fact draw gas from alternative sources until US gas came online coupled with green technologies will at some point replace Russian gas.

As a two raw resource country that is a nightmare long term.

The Russians somehow have not registered that the US has gained the edge as the leading gas producer for awhile to come---maybe that is why they are getting into fracking themselves.

This argument is getting way too much play, much of it from people who should know better. US gas exports are not going to rescue Europe.

It is true, and much said, that the US is the Saudi Arabia of natural gas production. It is also true that the US is... well, the America of natural gas consumption. Gas available for export is not a factor of production, it's a factor of production minus consumption.

The US does have a glut of gas right now, but that is likely to be transient. The glut exists because US capacity to produce gas grew faster than US capacity to use gas. Gas makes a great substitute for oil, but it's not an instant substitute. You can run a car on CNG or LNG, but it requires an expensive conversion or a new car, and nobody will switch unless fueling infrastructure is in place: no matter how cheap gas is, you don't by a CNG powered car if there are no filling stations in your area. If a utility is running a half dozen oil powered plants, they can't just switch to gas because it is cheap. They have to build gas fired plants and decommission those oil plants, which is a large capital expenditure. If a homeowner has a furnace that runs on oil, same problem, on a much smaller scale.

If domestic gas stays cheap, people and companies will switch, over time, and US consumption will grow. Of course gas producers want to export right now, because world prices are higher than US prices. Whether that would be good for the US is another question altogether. In any event, the bottom line is that while the US may be able to export some gas at some point, it's not going to replace Russia in Europe's supply matrix.

The real impact of US gas production in world markets will be displacement. As the US becomes self sufficient in gas, the 45 billion cubic meters of gas that the US imported in 2012 will become available for other countries to buy. The other up and coming factor in world markets is Australia, which has gas and is investing in major export facilities. That will go to Asia of course, but it will leave Qatar looking for other export markets, and Europe is the obvious one. If sanctions ever come off Iran, you're looking at a potential global gas glut... for a while at least.

However - and it's a big however - Europe cannot simply switch from Russian gas to Qatari gas, or US gas. Russian gas is piped direct, the potential replacements will arrive as LNG, in tankers. Europe does not currently have the LNG terminal capacity to replace Russian gas with LNG imports. For Europe to wean itself from Russian gas, the constraint is not just finding the gas. Europe will need to make major and rapid investments in new LNG terminals and in linking those terminals to their current east-facing pipeline networks.

If Germany really wants to knock Gazprom stock down, they should announce plans for a major LNG import terminal.

Of course in the long run the Russians can always pipe gas to Asia... but that's a big capital expenditure as well, and a considerable technical challenge.

[Fuchs]

@davidbfpo: The Austrians have been perhaps the most dovish from what I have seen. It is no surprise that the Firtash was arrested in Austria, this 'neutral' country has deeper economic and political ties with Russia then it's size might suggest. High living standards, calm political waters, a central location and formerly a strong privacy for your money even if you weren't a resident. A Switzerland light within the EU form that point of view.

That's not the reason.

Austria had elevated close economic ties with Eastern Europe to a kind of Grand Strategy. Its corporations were buying companies in Eastern Europe and operate them as subsidiaries. Its banks emphasized business with Eastern Europe very much.
Germany was busy with reunification - Austria was busy building relationships with Eastern Europe.
It's just not common knowledge because Austria is small, it was never a topic on the consumer brand level (more about financial markets and component suppliers), and whenever something goes wrong Austrians succeed to blame it on Germany anyway.

[Ulenspiegel]

That's not the reason.

It's just not common knowledge because Austria is small, it was never a topic on the consumer brand level (more about financial markets and component suppliers), and whenever something goes wrong Austrians succeed to blame it on Germany anyway.

This was true before 2009, but now it is hard to find an anti-German headline in a Austrian newspaper, the last four years were boring. :-)

[JMA]

Ah the gas issue.

Perhaps now we can return to the earlier defence of Germany's strategic decision to place reliance on energy from Russia.

A massive strategic error. Who was responsible and whose heads should roll?

This argument is getting way too much play, much of it from people who should know better. US gas exports are not going to rescue Europe.

It is true, and much said, that the US is the Saudi Arabia of natural gas production. It is also true that the US is... well, the America of natural gas consumption. Gas available for export is not a factor of production, it's a factor of production minus consumption.

snip

[Firn]

This argument is getting way too much play, much of it from people who should know better. US gas exports are not going to rescue Europe.

...

The real impact of US gas production in world markets will be displacement. As the US becomes self sufficient in gas, the 45 billion cubic meters of gas that the US imported in 2012 will become available for other countries to buy. The other up and coming factor in world markets is Australia, which has gas and is investing in major export facilities. That will go to Asia of course, but it will leave Qatar looking for other export markets, and Europe is the obvious one. If sanctions ever come off Iran, you're looking at a potential global gas glut... for a while at least.

...

If Germany really wants to knock Gazprom stock down, they should announce plans for a major LNG import terminal.

Of course in the long run the Russians can always pipe gas to Asia... but that's a big capital expenditure as well, and a considerable technical challenge.

I think we agree that LNG terminals are just one element of reducing the European dependence on Russian energy. The costs may sound large but a drop in the European economy. As you mentioned the partial substitution from gas I would like to throw in the coal issue, which got remarkable little attention. Maybe because it is such a dirty or at least not so Co2 neutral secret.



And it goes too...



Overly simplified cheap shale gas substitutes coal in the US which pushes down coal prices in the US and due to ease of export worldwide. So the shale gas boom is already creating a considerable energy flow from the US to Europe, but indirectly as coal is much cheaper to transport oversea.

[Ulenspiegel]

This argument is getting way too much play, much of it from people who should know better. US gas exports are not going to rescue Europe.

It is true, and much said, that the US is the Saudi Arabia of natural gas production. It is also true that the US is... well, the America of natural gas consumption. Gas available for export is not a factor of production, it's a factor of production minus consumption.

The US does have a glut of gas right now, but that is likely to be transient. The glut exists because US capacity to produce gas grew faster than US capacity to use gas. Gas makes a great substitute for oil, but it's not an instant substitute. You can run a car on CNG or LNG, but it requires an expensive conversion or a new car, and nobody will switch unless fueling infrastructure is in place: no matter how cheap gas is, you don't by a CNG powered car if there are no filling stations in your area. If a utility is running a half dozen oil powered plants, they can't just switch to gas because it is cheap. They have to build gas fired plants and decommission those oil plants, which is a large capital expenditure. If a homeowner has a furnace that runs on oil, same problem, on a much smaller scale.

If domestic gas stays cheap, people and companies will switch, over time, and US consumption will grow. Of course gas producers want to export right now, because world prices are higher than US prices. Whether that would be good for the US is another question altogether. In any event, the bottom line is that while the US may be able to export some gas at some point, it's not going to replace Russia in Europe's supply matrix.

The real impact of US gas production in world markets will be displacement. As the US becomes self sufficient in gas, the 45 billion cubic meters of gas that the US imported in 2012 will become available for other countries to buy. The other up and coming factor in world markets is Australia, which has gas and is investing in major export facilities. That will go to Asia of course, but it will leave Qatar looking for other export markets, and Europe is the obvious one. If sanctions ever come off Iran, you're looking at a potential global gas glut... for a while at least.

However - and it's a big however - Europe cannot simply switch from Russian gas to Qatari gas, or US gas. Russian gas is piped direct, the potential replacements will arrive as LNG, in tankers. Europe does not currently have the LNG terminal capacity to replace Russian gas with LNG imports. For Europe to wean itself from Russian gas, the constraint is not just finding the gas. Europe will need to make major and rapid investments in new LNG terminals and in linking those terminals to their current east-facing pipeline networks.

If Germany really wants to knock Gazprom stock down, they should announce plans for a major LNG import terminal.

Of course in the long run the Russians can always pipe gas to Asia... but that's a big capital expenditure as well, and a considerable technical challenge.

No, US gas will not peplace Russian gas, that is correct.

However, the current European LNG capacity is sufficient to replace Russian imports, the issues are that the volume of LNG on the global market is too small and that the NG distribution infrastructure in central Europe is not sufficient.

NG in Germany goes to 45% into industrial production (energy, precursor for bulk chemicals), around 45% is used for heating, only 10% for the generation of electricity.

The latter 10% can easily be substituted, this actually happened in the last two years. Our strategic weakness is the huge amont for heating, a cut off of the Russian deliveries in winter would very fast require the reassignment of industrial NG for haeting, leading to a damage of the German companies like BASF.

The best, i.e. cost efficient, strategy for Germany is IMHO to increase the refitting rate of buildings, goal should be the reductionof NG consumption by >2% per year, this would require arund 10-15 billion per year as credit (KfW). More wind power and PV would also help.

A gradual reduction of NG exports does not make any sense for Russia, a protracted low level economic war is the last Russia could afford, a short painful action would be better, like the destruction of a pipeline in Ukraine by "nationalists" in next winter with relatively large economic damage in Europe.

Some aspects of the US exports and European struation:

http://www.eurotrib.com/story/2014/3/18/35636/8272

[Firn]

That's not the reason.

Germany was busy with reunification - Austria was busy building relationships with Eastern Europe.

It's just not common knowledge because Austria is small, it was never a topic on the consumer brand level (more about financial markets and component suppliers), and whenever something goes wrong Austrians succeed to blame it on Germany anyway.

Those are good reasons, but the high Austrian investments in the East are of course an important topic which gave them a big economic boost as we discussed before, even in this thread I think. I was close to link to the Annual Report of Raiffeisen Bank International, the Austrian stock which suffered perhaps the most in recent weeks, but didn't want to go too deeply. Page 14 shows the number of costumers, note especially Russia and Ukraine...

Of course this drive to the (South)East didn't always go well, especially if you worked on both ends with the wrong guys.